Preparing for an IRS Audit When You Have Concerns About Tax Code Compliance

While facing a federal tax audit can be risky in any circumstance, it can be especially risky if you have concerns about tax code compliance. For high-income and high-net-worth taxpayers, non-compliance with the Internal Revenue Code can create substantial exposure—including exposure to liability for interest and penalties. With this in mind, what should you do if you have received an audit notice from the Internal Revenue Service (IRS)? Texas IRS audit attorney Lawrence Brown explains.

Defending Against an IRS Audit Involving Substantial Liability Exposure

If you are facing an IRS audit and have concerns about your filing or payment history (or both), your initial focus should be on determining what type of defense you can put forth during the audit. Do you have grounds to avoid liability (i.e., due to certain issues being beyond the IRS’s “look back” period)? Or do you need to focus on mitigating your liability triggered by a past filing mistake?

In either scenario, it is critical that you not make any assumptions. You should not assume that you violated federal law, and even if you violated federal law, you should not assume that the IRS will be able to prove it. Instead, an informed and strategic defense is required, and making informed and strategic decisions starts with gaining a clear understanding of both the relevant facts and the relevant law.

To gain a clear understanding of the relevant facts and the relevant law, you will need to work closely with an experienced attorney. When you hire an experienced Texas IRS audit attorney to represent you, one of your attorney’s first steps should be to conduct an independent and unbiased assessment of your federal tax liability and potential penalty exposure. While everyone’s circumstances are unique, for many high-income and high-net-worth taxpayers, this involves assessing factors such as:

• Whether you timely filed all required income tax returns and schedules;
• Whether you timely filed all other required forms and reports (such as IRS Form 8938 and the Report of Foreign Bank and Financial Accounts (FBAR) for disclosing offshore accounts);
• Whether you accurately disclosed your income from all sources, both in the United States and abroad;
• Whether you have used any tax planning strategies that the IRS has flagged as potential abusive tax shelters and,
• Whether you may have overlooked any tax benefits that could offset any amounts you might otherwise owe to the IRS.

These are just a small sampling of issues that can come up during the IRS audit process. Once you know what (if anything) the IRS is likely to uncover and you have a clear understanding of the legal implications involved, then you can build a defense strategy focused on the specific factual and legal issues at hand. While there are a variety of ways to approach an IRS audit, to mitigate your risk, you need to choose the best approach for your specific circumstances.

5 Key Considerations for Defending Against a High-Stakes IRS Audit

Here are five more key considerations for defending against an IRS audit as a high-income or high-net-worth taxpayer:

1. You Need to Focus on the Realities At Hand

When facing a high-stakes IRS audit, it is important to focus on the realities at hand. If you have violated the Internal Revenue Code (or any other federal law or regulation), this is a reality you need to address—and it is in your best interests to confront it head-on.

To be clear, this does not mean issuing a mea culpa to the IRS. Rather, it means building your defense strategy around the facts as they exist—and as the IRS is likely to uncover them during the audit process. While cooperating with the IRS can be advantageous in some cases, once again, you need to focus on making informed decisions rather than making assumptions about what might or might not produce the best result.

2. The IRS Almost Certainly Has Information from Other Sources

Another important factor to keep in mind is that the IRS almost certainly has information from other sources. Financial institutions and other entities, both in the U.S. and abroad, have varying obligations to disclose taxpayers’ information to the IRS. As a result, attempting to cover up information during an IRS audit can be very risky—and not only can it limit opportunities for settlement, but it can also lead to criminal accusations in many cases.

3. Settlement is a Viable Solution (When Warranted)

Even if you have substantially underpaid your federal tax liability, settlement is still a viable solution. The IRS routinely settles substantial tax debts uncovered through audits and investigations, and even if it is clear that you are underpaid, there may be legitimate questions about how much you rightfully owe. Negotiating a favorable settlement is one of the most important ways an experienced Texas IRS audit attorney can help—if it is not possible to help you avoid liability entirely.

4. There Are a Variety of Ways to Favorably Resolve an IRS Audit

While settling with the IRS is one option, it is far from the only option that is available. There are a variety of ways to favorably resolve an IRS audit. Before you focus your efforts on negotiating a settlement that mitigates your liability, you should work closely with your tax counsel to ensure that this is the best option under the circumstances at hand.

5. You Need to Be Careful to Keep the Inquiry Civil in Nature

Finally, when facing a high-stakes IRS audit, it is critical to ensure that the stakes remain no higher than necessary. Among other things, this means being careful to keep the IRS’s inquiry civil in nature. Tax offenses can warrant criminal prosecution in some cases, and regardless of the circumstances at hand, you do not want to unnecessarily put yourself at risk for a federal indictment.

Request an Appointment with Texas IRS Audit Attorney Lawrence Brown

If you are facing an IRS audit as a high-income or high-net-worth taxpayer, Texas IRS audit attorney Lawrence Brown can help. To request a confidential consultation, call 888-870-0025 or contact us confidentially online today.